16 TAC §26.134
The Public Utility Commission of Texas (commission) adopts
new §26.134, relating to the Market Test to be Applied in Determining
if Markets with Populations Less Than 30,000 Should Remain Regulated after
January 1, 2007 with changes to the proposed text as published in the March
24, 2006,
Texas Register
(31 TexReg 2352).
The new rule, implementing PURA §65.052(f), establishes the market test
to be applied in determining whether a market with a population of less than
30,000 should remain regulated after January 1, 2007. Project Number 32169
is assigned to this proceeding.
The new section applies to all incumbent local exchange carriers (ILECs).
The market test is based upon the number and type of competitors providing
service in the market. In many of the markets with a population less than
30,000, the rural exemption as provided for in Section 251(f)(1) "Exemption
for Certain Rural Telephone Companies" of the Federal Communications Act of
1934 is effective. In those markets, the new rule requires that exemption
to be removed. In addition, the new section provides the schedule for implementation
of the new provisions.
The commission received initial comments on the proposed rule from Southwestern
Bell Telephone, L.P. d/b/a AT&T Texas (AT&T Texas), Verizon Southwest
(Verizon), Texas Telephone Association (TTA), Office of the Attorney General
of the State of Texas (State), and Office of Public Utility Counsel (OPC).
Additionally, the commission received reply comments from AT&T Texas and
the State. A Public Hearing was held in this matter on May 5, 2006. In attendance
were representatives of the State, TTA, AT&T Texas, John Starulakis, Inc.
(JSI), OPC, Verizon, and Texas Statewide Telephone Cooperative, Inc.
A summary of the stakeholders' filed comments and commission responses
are set forth hereafter.
In the publication preamble, the commission asked a question regarding
how the commission should account for any situations in which robust telecommunications
competition exists in a market, but the type of competitors in the market
does not completely mirror the types of competitors delineated in subsection
(c).
Commission Response
The State and OPC responded to the commission's preamble query and made
specific recommendations applicable to §26.134(c) of the proposed rule
that addressed their concerns. Given that the responses to the question were
specific to §26.134(c), the summary of comments and the commission's
responses appear in that section of the preamble.
Subsection 26.134(c) of the new rule outlines the market test for exchanges
with populations less than 30,000 (hereinafter sometimes referred to as "small
markets").
Verizon, the State, and OPC commented on the number and type of competitors
required in each market.
Verizon commented that, at the very least, the proposed rule should be
modified to require only two competitors to the ILEC to satisfy the market
test: a wireless competitor and a facilities-based wireline competitor. Verizon
justified this proposed modification by stating that it believed the Legislature
intentionally refused to apply the same test to small markets that it applied
to large markets, thus recognizing that small markets generally attract fewer
competitors, but are still subject to deregulation under Senate Bill 5.
Commission Response
The commission declines to modify the rule based upon Verizon's comment.
The commission finds that a list of two competitors does not provide customers
with sufficient choice.
The State described the proposed rule as an attempt to modify the law applicable
to mid-sized markets (30,000-100,000 in population), which simply required
the existence of three different, statutorily established, type competitors
in a market to deregulate it. The State proposed language in subsection (c)(1)
to increase the number of competitors from three to four or more of the types
listed in (c), without a specific requirement of any particular mix of the
four types of competitors listed.
Commission Response
The commission declines to make either suggested change. The State's suggestion
could result in deregulation of an exchange where there are four competitors
of any type. The commission finds that this approach would provide some customer
choice, but because all four of the competitors could be the same type, this
approach would not provide sufficient customer choice to justify deregulation
of that exchange. Customers should have choice, not only among a certain number
of competitors, but also among different types of providers. The commission
believes that the test outlined in the rule, based upon the requirements for
markets 30,000 to 100,000 in population, is the appropriate market test.
OPC supported the inclusion in the commission's proposed rule of the requirement
that at least one of the three competitors be an entity providing residential
service using facilities that the entity or its affiliate owns. However, OPC
recommended "tightening" this subsection by including the requirement that
the facilities-based provider either hold a certificate of operating authority
or service provider certificate of operation authority, or clarifying that
the facilities-based provider is not to be counted towards meeting the criteria
of the competitors in subsection (c)(2).
Commission Response
The commission does not add the requirement suggested by OPC. The commission
anticipates that the competitors "providing residential service using facilities
that the entity or its affiliate owns" often will be cable companies utilizing
VOIP technology. The commission believes that such competitors should be counted
in the market test. Depending upon future action by the Federal Communications
Commission, such entities may or may not be required to hold certificates.
Therefore, the commission is concerned that requiring certification may preclude
these entities from being considered a competitor for the purposes of demonstrating
competition within small market areas.
OPC commented that the rule is not sufficiently clear if a subsection (c)(1)
competitor, the facilities based provider, could be considered as a competitor
for the purposes of subsection (c)(2) as well.
Commission Response
The commission acknowledges OPC's concern and revises subsection (c) to
include the word "separate" before competitors to clarify that three separate
competitors must exist in the market.
Subsection (c)(2)(C) requires that a satellite telecommunications provider,
in order to be counted under the market test, must be certified as an eligible
telecommunications carrier for the entire market pursuant to §26.418
of this chapter.
AT&T Texas stated concern with this provision, arguing that because
the ETC requirements of §26.418 are probably foreign and burdensome to
satellite providers, it is highly unlikely that such providers will pursue
certification under §26.418. Thus, left as written, the rule would require
the commission to hold that a competitive satellite provider could not be
considered a competitor if the satellite provider did not seek ETC status.
Further, AT&T Texas noted that no such requirements were imposed on cable
providers or wireless providers when the Legislature enacted PURA Subchapter
B of Chapter 65. AT&T Texas suggested for the above reasons, the ETC requirements
should be removed from subsection 26.134 (c)(2)(C) of the proposed rule.
In its reply comments, the State noted that both satellite and wireless
providers have sought and likely will continue to seek ETC designation due
to both favorable market conditions and the current existence of universal
service subsidies in those areas. The State noted that the ETC designation
requirement is a useful proxy to measure penetration into markets in which
only one or two competitors are present.
Commission Response
The commission declines to make the change requested by AT&T Texas.
The commission agrees with the comments of the State that the fact that satellite
providers have sought ETC designation, the requirements must not be foreign
and burdensome to this type of carrier.
The commission, however, rejects the State's argument that the ETC designation
is a proxy to measure market penetration. Rather, the commission finds it
appropriate to require that a satellite provider be designated as an ETC in
order to be counted in the market test because, unlike other types of providers,
a satellite provider could provide service in most areas of the state and
does not have facilities located in one geographic area. The ETC designation
requires a provider to advertise its services in the geographic area in which
it is designated as an ETC. The commission is concerned that eliminating this
requirement would allow a satellite provider to be counted for the market
test while no potential customers would be aware of that competitive choice.
In contrast to AT&T Texas's position, both OPC and the State recommended
extending the ETC requirement to other types of providers.
OPC proposed a change to subsection (c)(2)(C) to require any telecommunications
provider, not just a satellite telecommunications provider, to be certified
as an eligible telecommunications carrier for the entire market pursuant to §26.418.
OPC maintained the commission would be ensuring that the carrier would eventually
be serving the entire market and established service standards would be met.
According to OPC, this modification would create a technology neutral rule
and might ensure the rule would not need to be reopened to address any new
technology that was excluded.
The State proposed to add additional rule language at subsection (c)(2)(B)
that would require commercial mobile service operators to be certified as
an eligible telecommunications carrier for the entire market pursuant to §26.418,
relating to
Designation of Common Carriers as Eligible
Telecommunications Carriers to Receive Federal Universal Funds
, in
order to be considered a qualifying competitor.
Commission Response
The commission declines to require any telecommunications provider, other
than a satellite provider, to be designated as an ETC in order to be counted
as a competitor pursuant to the market test. For providers with facilities
in a particular geographic area, the commission believes that such providers
will generally advertise to sell their services to customers.
The State, OPC, and TTA suggested alternative market tests or significant
modifications to the proposed market test.
In addition to the changes proposed to subsection (c), the State suggested
an alternate market test would be appropriate for markets that could not meet
the first test. Such a test would require a public interest finding by the
commission when the requisite competitors are not present, but where there
is a ubiquitous presence by fewer competitors, and which measures, at least
to some degree, the amount of penetration of competition in small markets
when fewer competitors are present but there is ubiquitous presence by such
competitors.
Therefore, the State recommended an additional new market test as a stand-alone
subsection (d) (and the requisite re-lettering and re-numbering of the ensuing
provisions) that would deregulate a small market when: (1) one to three competitors
exist, (2) a market penetration test can be met which demonstrates each competitor
offers to provide service to at least fifty percent (50%) of the market, and
(3) the commission finds that deregulation of such market is in the public
interest. The State suggested that the market penetration portion of the proposed
test can be determined by using a percentage of total square miles, number
of wire centers, or number of census blocks as the denominator, and the square
mileage, number of wire centers, or number of census blocks in the market
in which service is offered as the numerator.
OPC also supported a market penetration test; however, OPC commented that
such a test should be included in subsection (c). OPC commented that a minimum
market penetration criterion requiring each qualifying competitor to serve
no less than one percent of the market and that all three combined provide
service to no less than 25% of the market.
TTA believed that some small markets may never experience the conditions
described in subsection (c), and argued that there should be a mechanism whereby
the commission could exercise discretionary authority to deregulate such small
exchanges without a predetermined market test. TTA argued the commission should
allow companies within such exchanges to produce evidence demonstrating a
sufficient level of competition. TTA argued that markets served by two providers
(including the ILEC), where each is designated as an ETC, should be deregulated
because under those conditions the commission will know that the competitive
ETC offers (and advertises) myriad telecommunications services throughout
the market.
AT&T Texas, in its reply comments, opined that the Legislature expected
future deregulation proceedings and argues that Senate Bill 5 provides a clear
path to deregulate markets with populations below 30,000, knowing that the
commission has the authority to re-regulate should that be appropriate under
PURA §65.055. The ability to re-regulate, according to AT&T Texas
again, provides a "safety valve" should deregulation harm the market place.
AT&T Texas argues that the timeframes imposed by the legislature--the
sequence of timeframes contained in Subchapter B of Chapter 65--when combined
with PURA §65.055, make it clear that complex tests are unnecessary and
contrary to the intent of the Legislature. According to AT&T Texas, given
the November 30, 2006, statutory deadline, only a simple market test can be
utilized. According to AT&T Texas, complex or vague tests should be rejected,
as the commission and the parties need to know precisely what evidence will
be used in the deregulation analysis. AT&T Texas notes that uncertainty
could confuse and delay the commission's statutorily-imposed decision-making
responsibility and that a clear test will allow the commissioners to receive
and digest the evidence with all deliberate speed.
Commission Response
The commission agrees with AT&T that complex or vague tests should
be rejected. Therefore, the commission declines to modify the rule to include
the additional market penetration test suggested by the State, the market
penetration test offered by OPC, or the comment from TTA that the market test
should, in effect, be discretionary. The commission is concerned about the
time and resource constraints for the parties as well as the commission associated
with determining the contentious and complex issues associated with any market
penetration test or a more discretionary know-it-when-you-see-it test.
TTA and AT&T Texas argued that this new rule should apply only to the
markets to be deregulated in 2006.
TTA urged that in the event the commission does not believe it can examine
some of these exchanges on a case-by-case basis before the statutory deadline
of 2006, the commission should allow for discretionary deregulation authority
after July 1, 2007.
AT&T Texas argued in its reply comments that this project should be
limited to creating the market test used to meet the requirements of PURA §65.052(f)
and should not limit what evidence might be appropriate under PURA §65.054(a),
which, according to AT&T Texas, contemplates future dockets. AT&T
Texas asserted that as customer choice develops due to advances in technology,
the market test for small and medium-sized markets may need to evolve accordingly.
Therefore, according to AT&T Texas, the market test developed in this
project should not foreclose consideration of additional technology and competitors
in the future.
Commission Response
The commission has a statutory deadline of November 30, 2006, to make the
initial findings of whether markets under 30,000 population are deregulated.
After the initial finding in 2006 and beginning July 1, 2007, ILECs can request
that the commission determine the status of the remaining regulated markets.
The commission declines to make the changes requested by TTA and AT&T
Texas. The commission finds that the market test adopted in this proceeding
is the appropriate test. If, at a later date, the commission finds it necessary
to modify the market test, it can do so through another rulemaking proceeding.
If a party believes that the market test should be revised, it can file a
petition for rulemaking. The commission finds that the market tests applicable
to ILEC requests filed pursuant to PURA §65.054(a) are as follows: (1)
for markets with populations between 30,000 and 100,000, the appropriate market
test is provided in PURA §65.052 ,and (2) for markets with populations
under 30,000 population, the appropriate market test is the one set forth
in this rule.
AT&T Texas argued that the first sentence in proposed §26.134(c),
which dictates that
"only if" the ILEC "submits evidence"
that meets the substantive requirements shall the market be deregulated
,
is contrary to the statutory language that gave rise to this rulemaking. AT&T
Texas quoted PURA §65.051(b) as stating that a market with a population
of less than 30,000 "
is
deregulated" on January
1, 2007, "unless the commission determines under §65.052(f) that the
market should remain regulated." According to AT&T Texas, this statute
assigns the commission the responsibility to take affirmative action to reach
a conclusion with regard to deregulation. AT&T Texas further argued that
the statute does not authorize the commission to require that any party come
forward with evidence as to whether a particular area should be deregulated.
Even though AT&T Texas noted that it is entitled to and will provide relevant
evidence, should that evidence somehow fail to persuade the commission, it
argued that the commission still has the ability and responsibility to examine
whatever information is available to it and decide whether the area should
remain regulated under the statute.
Commission Response
The commission notes that the requirement that the ILECs bring forward
the necessary evidence to demonstrate that they meet the market test is not
novel. The ILECs, including AT&T Texas, that participated in Docket Number
31831 for the deregulation of markets with populations of 30,000 or more were
subject to the same requirement. The requirement is necessary partly because,
as indicated in earlier responses, the commission is faced with considering
and processing a substantial amount of information in a very limited amount
of time. Moreover, the commission does not, as AT&T Texas's comments suggest,
possess in any readily available form, the information that would demonstrate
that any given market fulfilled the requirements of this test. Simply put,
if the burden of proof is on the commission, then the commission will be compelled
to rely on the information it has, which would indicate at this time that
sufficient competition does not exist in any small market.
The commission believes a more practical approach is for industry participants
seeking to be deregulated in specific markets, known only to them, to submit
evidence specific to those markets upon which the commission can then decide
if the competitive threshold requirements of the rule have been met. The commission
finds this approach to be the only practicable solution to this issue, considering
the limited time it has to examine and process the information that will be
required to determine the competitive status of these small markets.
Section 26.134(d) provides that in addition to meeting the requirements
of subsection (c), an ILEC seeking deregulation of a market area for which
the rural exemption as provided for in Section 251(f)(1) of the Communications
Act of 1934 applies must meet an additional requirement. The rural exemption
effectively prevents certain wireline competitors from entering a market.
Such ILEC seeking deregulation must have that rural exemption removed by the
commission in order for that market not to remain regulated.
TTA maintained that small markets should be eligible for deregulation without
regard to the status of the rural exemption. It suggested that most rural
ILECs are more subject to intermodal competition than intramodal competition,
such as facilities-based providers as prescribed by PURA §65.052(b)(2)(B).
Further, TTA pointed out that rural telephone companies with markets between
30,000 and 100,000 are allowed to deregulate those markets without regard
to the status of the rural exemption.
The State, in both its initial comments as well as its reply comments,
supported the inclusion of the requirement that any existing exemption be
removed prior to deregulation of a market. In its reply comments, the State
opined that it is counterintuitive to deregulate a market but maintain restrictions
on wireline market entry by failing to remove the ILEC's rural exemption.
Commission Response
The commission agrees with the State and declines to make the change requested
by TTA. The commission believes that if a market is deregulated, all market
entry barriers should be lifted, including the rural exemption.
At the public hearing, a representative of JSI requested that subsection
(d) of the commission's proposed rule to be modified to clarify that rural
exemptions for small markets will be lifted on a market-by-market basis.
Commission Response
The commission agrees with the request made by the representative of JSI.
The rural exemption pursuant to Section 251(f)(1) applies to all of an ILEC's
markets. The requirement that the rural exemption be lifted should apply only
to the markets in which the ILEC is seeking deregulation, not to all of the
ILEC's markets. Therefore, the commission has revised its proposed rule to
reflect its market-by-market approach to lifting the rural exemption.
In addition, the commission removes the phrase "filed by the ILEC" from
section (d). The commission finds that the operative language is the phrase
"approved by the commission" and that the entity actually filing the request
is immaterial.
Section 26.134(e) sets forth the time frame requirements for submitting
evidence for markets deregulated on January 1, 2007 and for markets deregulated
after January 1, 2007.
AT&T Texas suggested that subsection (e) of the proposed rule should
be eliminated in its entirety. According to AT&T Texas, eliminating subsection
(e)(1) would avoid a situation where the commission is forced to choose between
ignoring evidence and violating its own rule. AT&T Texas asserted subsection
(e)(2) should be eliminated as it unnecessarily ties two events together,
i.e., that which must occur before November 30, 2006 and that which may occur
after July 1, 2007. According to AT&T Texas since the statutory basis
for these two events is different, any rule based on these statutes should
not necessarily be identical. AT&T Texas opined that the commission has
the responsibility to affirmatively take certain action by November 30, 2006.
According to AT&T Texas, under PURA §65.054, the commission shall
react to a petition filed with it. According to AT&T Texas, this distinction
allows for different treatment of parties' burdens of providing evidence and,
further, according to AT&T Texas, it is unclear that procedural requirements
are needed now to address a petition filed under PURA §65.054. For these
reasons, AT&T Texas suggested that subsection (e)(2) be stricken from
the proposed rule.
Commission Response
The commission declines to make the changes requested by AT&T Texas.
The commission finds subsection (e) of the rule provides instructive guidance
necessary for it to successfully examine existing competitive conditions in
small markets. Further, the commission believes that AT&T Texas's arguments
here are another attempt to raise the burden of proof issue, discussed ante
, and the idea that a different market test
would be appropriate for proceedings conducted in 2007 and later.
The commission disagrees with AT&T Texas for the reasons articulated
in the commission's response above to the burden of proof issue.
Further, as noted above, the commission disagrees with AT&T Texas that
the statutory basis for the proceeding in 2006 is materially different from
any proceedings in 2007 or later. The market tests, as outlined above, are
applied in either situation. The only statutory difference is timing.
The commission acknowledges all of the comments filed by the parties and
will continue to evaluate the need to conduct a comprehensive review of service
objectives and performance benchmarks for all LECs in Texas.
All comments, including any not specifically referenced herein, were fully
considered by the commission.
This rule is adopted under the Public Utility Regulatory Act,
Texas Utilities Code Annotated §14.002 (Vernon 1998 & Supplement
2005) (PURA) which provides the commission with the authority to make and
enforce rules reasonably required in the exercise of its powers and jurisdiction, §65.003,
relating to commission authority, §65.004, concerning collection of information, §65.051,
regarding deregulation of markets, and §65.052(f), relating to applicable
test for deregulation of certain markets.
Cross Reference to Statutes: Public Utility Regulatory Act §§14.002,
14.052, 65.003, 65.004, 65.051, and 65.052.
§26.134.Market Test to be Applied in Determining if Markets with Populations Less than 30,000 Should Remain Regulated on or After January 1, 2007.
(a)
Purpose. The purpose of this section is to establish the
market tests to be applied in determining if markets with populations less
than 30,000 should remain regulated after January 1, 2007.
(b)
Application. This section applies to all incumbent local
exchange companies (ILECs), as defined in §26.5 of this title (relating
to Definitions).
(c)
Market Test. Markets as defined in §65.002 of PURA
with a population of less than 30,000 shall be deregulated only if the ILEC
providing services to such a market submits evidence demonstrating that the
population in the market is less than 30,000 and in addition to the ILEC there
are three separate competitors:
(1)
of which at least one competitor is an entity providing
residential telephone service in the market using facilities that the entity
or its affiliate owns; and
(2)
of which at least two competitors must be from two different
categories of the following:
(A)
a telecommunications provider that holds a certificate
of operating authority or service provider certificate of operating authority
and provides residential local exchange telephone service in the market;
(B)
a provider in that market of commercial mobile service
as defined by Section 332(d), Communications Act of 1934 (47 U.S.C. Section
151 et. Seq.), Federal Communications Commission rules, and the Omnibus Budget
Reconciliation Act of 1993 (Pub. L. No. 103-66), that is not affiliated with
the incumbent local exchange company; and
(C)
a satellite telecommunications provider certified as an
eligible telecommunications carrier for the entire market pursuant to §26.418
of this title (relating to Designation of Common Carriers as Eligible Telecommunications
Carriers to Receive Federal Universal Service Funds).
(d)
Rural Exemption Waiver. In the event that an ILEC seeking
deregulation of a market area with a population of less than 30,000 has a
rural exemption as provided for in Section 251(f)(1) "Exemption For Certain
Rural Telephone Companies" of the Communications Act of 1934, a petition for
the removal of that rural exemption for that market must be approved by the
commission in order for the market in question not to remain regulated. In
addition, any such market must meet the conditions of the market test set
forth in subsection (c) of this section.
(e)
Timing.
(1)
Markets shall be deregulated on January 1, 2007 only if
the ILEC providing service to such a market(s) submits evidence on or before
August 1, 2006 in compliance with subsection (c) of this section and, if applicable,
subsection (d) of this section.
(2)
After July 1, 2007 an ILEC petitioning for deregulation
of a market with a population of less than 30,000 shall submit with its petition
the evidence in compliance with subsection (c) of this section and, if applicable,
subsection (d) of this section.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Filed with the Office of
the Secretary of State on June 22, 2006.
TRD-200603425
Adriana Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: July 12, 2006
Proposal publication date: March 24, 2006
For further information, please call: (512) 936-7211